Shares in telecoms giant BT Group were among the steeper risers on
the London Stock Exchange yesterday on hopes that a 20-year-old
guarantee from the Government could slash the company's pension
fund liabilities.

BT said a the guarantee dating back to its privatisation in 1984
should cover roughly pounds 28 billion of its pension fund liabilities,
or three quarters of its total obligation to employees.

The ex-telecoms monopoly also said it had delayed the release of
its triennial pension fund review until it receives "draft
guidelines" on the so-called Crown Guarantee.

The exact terms of the guarantee will help determine how much cash
BT will need to pump into its pension fund, and whether the firm will
ultimately succumb to a takeover bid.

The bigger the pension deficit, the less attractive it becomes to
the private equity groups reportedly eyeing the company.

BT maintains the guarantee covers the pension liabilities of all
staff on its payroll in 1984 - or roughly 75 per cent of the pounds 38
billion total.

The Department of Trade and Industry, however, is said to believe
that it only relates to liabilities accrued up to 1984.

Brokers Morgan Stanley said BT will pay the UK's pension
regulator "significantly" less than previous estimates if it
wins its battle with the DTi.

The three-yearly review into the pension fund will not now be
published until "some time after" the fiscal full-year results
on May 18. Previously the group said the triennial review would be
released alongside the results.

The last full review of the pension fund revealed a shortfall of
some pounds 2.1 billion at the end of 2002, which BT had agreed to plug
through an annual supplemental payment of some pounds 232 million.

BT yesterday said the IAS 19 accounting valuation of its deficit -
a different method to the one used in the triennial review - fell to
pounds 2.5 billion by the end of March, compared to pounds 4.7 billion a
year earlier.

Damien Chew, telecoms analyst at ING Financial Markets, said:
"There is a chance that the guarantee will end up reducing payments
into the pension plan, which would be a positive signal for the
shares."

Other analysts said the update from BT was good news and indicated
the Crown guarantee could limit the telecoms firm's contributions
to the Pension Protection Fund.

Sam Morton, of Dresdner Kleinwort Wasserstein, said: "We had
previously see BT's pension deficit as a potential stumbling block
to private equity interest, but that obstacle now seems less
relevant."

The news that private equity firm Blackstone has bought a 4.5 per
cent stake in German firm Deutsche Telekom should remind investors that
venture capitalists are interested in telecoms assets, he added.

Barclays analyst Daniel Krimholtz agreed that it made the firm more
likely to receive a bid, although the trading environment could put
potential bidders off.

BT shares closed up 4 1/2 p at 217 3/4 p.

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